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Ruling

Question 1

Is a Living Away From Home Allowance (LAFHA) considered 'Ordinary Time Earnings' for Super Guarantee calculation purpose?

Answer:

The Superannuation Laws Amendment (2004 Measures No 2) Act 2004 (Act No 93 of 2004) simplifies the earnings base of an employee for superannuation guarantee (SG) purposes. The SG amendments, which apply from 1 July 2008, have the effect that all employers will calculate their SG liability against an employee's ordinary time earnings.

Various provisions of the Superannuation Guarantee (Administration) Act 1992 (SGAA) were removed from 1 July 2008 so that the simpler ordinary time earnings is the basis of calculation in all cases. The provisions which were repealed included:

· provisions which currently allow the use of pre-21 August 1991 earnings bases (section 13 of the SGAA)

· provisions which allow earnings bases specified in industrial awards, superannuation schemes, occupational superannuation arrangements or a law of the Commonwealth, state or territory (section 14 of the SGAA).

The requirements mean that some employers will have to contribute on an earnings base that includes additional items, such as bonuses, commissions and shift loadings. Although these items are included in the definition of ordinary time earnings, they may not be included in the earnings base previously used by the employer.

From 1 July 2008, employers will still be able to use notional earnings bases specified in legislation or industrial agreements as the basis of their SG contributions where these are above an employee's ordinary time earnings, but SG liability will only be assessed against ordinary time earnings.

Superannuation Guarantee (Administration) Act 1992 (SGAA)

Under the SGAA an employer must provide the required minimum level of superannuation support for its employees by the due date (unless the employees are exempt employees) or pay the superannuation guarantee charge (SGC).

The minimum level of support is calculated by multiplying the charge percentage (currently 9%) by each employee's earnings base. From 1 July 2008, an employer must use ordinary time earnings as defined in SGAA as the earnings base to calculate the minimum superannuation contributions for their employees. Ordinary time earnings are generally what an employee earns for their ordinary hours of work.

If a worker is not an employee as defined under the SGAA, or is an employee but covered by one of the exceptions in the SGAA, there is no obligation to provide superannuation support for the worker, and no liability to pay the SGC will arise.

When determining whether a payment is subject to superannuation, it is therefore necessary to consider firstly whether the worker is an employee under the SGAA, and if so, whether the payment constitutes ordinary time earnings.

The meaning of employee under the SGAA

Under the SGAA, the term employee is given its ordinary meaning (that is, its meaning under common law). Subsection 12(1) of the SGAA states:

Subject to this section, in this Act, employee and employer have their ordinary meaning. However, for the purposes of this Act, subsections (2) to (11):

(a) expand the meaning of those terms; and

(b) make particular provision to avoid doubt as to the status of certain persons.

Therefore, if an individual is an employee at common law, they are an employee for the purposes of the SGAA (unless one of the exceptions in subsections 12(9A) and (11) applies). A person will be a common law employee if it can be established that they are in an employer-employee relationship, that is, a person working under a contract of service.

An employee is generally a person who receives payment in the form of salary and wages in return for labour or services provided.

Conclusion

In this case you are you are in Australia temporarily working under a 457 Visa for an Australian company and as such and for the purposes of the Superannuation Guarantee (Administration) Act 1992 you are classified as an employee

Super Guarantee Ruling SG 2009/2

This new ruling on ordinary time earnings and salary or wages, SGR 2009/2, was issued on 13 May 2009. The date of effect of the new ruling was 1 July 2009. This ruling replaces SGR 94/4, 'Ordinary time earnings' and SGR 94/5, 'Salary or Wages', which were withdrawn from 1 July 2009.

The ruling explains the meaning of 'ordinary time earnings' (OTE) as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA).

The definition of 'ordinary time earnings' is relevant to employers for the purpose of calculating the minimum level of superannuation support required for individual employees under the SGAA.

Ordinary time earnings

Ordinary time earnings are generally what an employee earns for their ordinary hours of work, including:

· over-award payments

· bonuses

· commissions

· allowances.

Ordinary time earnings, in relation to an employee, is defined in subsection 6(1) of the SGAA as:

(a) the total of:

(i) earnings in respect of ordinary hours of work other than earnings consisting of a lump sum payment of any of the following kinds made to the employee on the termination of his or her employment:

(A) a payment in lieu of unused sick leave;

(B) an unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997 ; and

(ii) earnings consisting of over-award payments, shift-loading or commission; or

(b) if the total ascertained in accordance with paragraph (a) would be greater than the maximum contribution base for the quarter - the maximum contribution base.

The SGAA does not define the expression 'earnings in respect of ordinary hours of work' or any of the terms in that expression, however the meanings are considered in SG 2009/2 below.

Meaning of 'ordinary hours of work'

An employee's 'ordinary hours of work' are the hours specified as his or her ordinary hours of work under the relevant award or agreement, or under the combination of such documents, that governs the employee's conditions of employment.

The document need not use the exact expression 'ordinary hours of work', but it needs to draw a genuine distinction, for the purposes of the award or agreement, between ordinary hours and other hours. In particular, it would be expected that the other hours are remunerated at a higher rate (typically described as overtime) than the ordinary hours, or otherwise identifiable as a separate component of the total pay in respect of non-ordinary hours.

Any hours worked in excess of, or outside the span (if any) of, those specified ordinary hours of work are not part of the employee's 'ordinary hours of work'.

If the ordinary hours of work are not specified in a relevant award or agreement, the 'ordinary hours of work' are the normal, regular, usual or customary hours worked by the employee, as determined in all the circumstances of the case. This is not necessarily the minimum or maximum number of hours worked or required to be worked.

In such cases, it may often not be possible or practicable to determine the normal, regular, usual or customary hours of an employee's work. If so, the actual hours worked should be taken to be the ordinary hours of work.

Ordinary hours of work' are not necessarily limited to hours to be worked between 9am and 5pm, Monday to Friday. They may (depending on the provision in the relevant award or agreement, if any) include hours to be worked at other times, including at night, on weekends or on public holidays.

Meaning of 'earnings'

An employee's 'earnings', for the purpose of the definition of OTE, is the remuneration paid to the employee as a reward for the employee's services. The practical effect for superannuation guarantee purposes is that the expression 'earnings' means 'salary or wages'.

Maximum Contribution Base

Under the SGAA, if an employer has not made sufficient SG contributions for an employee in a quarter, the employee's salary or wages in that quarter is used to calculate the individual employee's SG shortfall. For this purpose the amount of the employee's salary or wages in the quarter is also limited to the maximum contribution base pursuant to paragraph 6(1)(b) of the SGAA.

Salary or wages is defined in subsection 11(1) of the SGAA:

11(1) In this Act, salary or wages includes:

(a) commission; and

(b) payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate; and

(ba) payments under a contract referred to in subsection 12(3) that are made in respect of the labour of the person working under the contract; and

(c) remuneration of a member of the Parliament of the Commonwealth or a State or the Legislative Assembly of a Territory; and

(d) payments to a person for work referred to in subsection 12(8); and

(e) remuneration of a person referred to in subsection 12(9) or (10).

Under subsections 11(2) and 11(3) certain payments are excluded from being salary or wages:

11(2) Remuneration under a contract for the employment of a person, for not more than 30 hours per week, in work that is wholly or principally of a domestic or private nature is not to be taken into account as salary or wages for the purposes of this Act.

11(3) Fringe benefits within the meaning of the Fringe Benefits Tax Assessment Act 1986 are not salary or wages for the purposes of this Act.

The SGAA defines 'salary or wages' inclusively in section 11. Unless specifically excluded, payments are included in the definition of 'salary or wages' if they satisfy the ordinary or common law meaning of that term or if they fall within the extended definition in subsection 11(1).

The salary or wages of an employee do not necessarily have to be paid by the employer; they also may be paid on behalf of the employer by another party: see subsection 6(3) of the SGAA

Payments excluded from the definition of 'salary or wages'

Fringe benefits and other non-cash benefits

Fringe benefits as defined in the Fringe Benefits Tax Assessment Act 1986 (FBTAA) are excluded under subsection 11(3) of the SGAA. Additionally, the Commissioner takes the view that other 'benefits', within the meaning of the FBTAA, given by employers to employees that are neither fringe benefits nor salary or wages within the meaning of that Act are not salary or wages for SGAA purposes. For example:

· contributions made by an employer to a complying superannuation fund for the benefit of an employee (including those required to be made by the superannuation guarantee legislation itself); and

· the acquisition of a share, or of a right to acquire a share, under an employee share scheme (within the meaning of Division 13A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936)),

…are not salary or wages for SGAA purposes.

Conclusion

In this case you are you are in Australia temporarily working under a 457 Visa for an Australian company and as such are classified as an employee.

The Living Away from Home Allowance being a fringe benefit is paid to you the employee to compensate you for additional expenses incurred and any disadvantages suffered because you are required to live away from your usual place of residence to enable you to perform your duties for the employer.

This LAFHA payment is a fringe benefit. Subsection 11(3) of the SGAA provides that fringe benefits within the meaning of the Fringe Benefits Tax Assessment Act 1986 is not treated as salary and wages for the purpose of the SGAA and therefore will not form part of ordinary time earnings.

Therefore the Living Away from Home Allowance being a fringe benefit is not to be taken into account as salary or wages for the purposes of this Act, and would not be included in the "ordinary time earnings" calculations.

Question 2

Are superannuation contributions to be paid by the employer on the Living Away From Home Allowance (LAFHA) when it is part of your salary?

Living Away from Home Allowances

The Superannuation Guarantee (Administration) Act 1992 (SGAA), subsection 11(1) defines Salary or wages for the purposes of super guarantee calculations as follows;

11(1) In this Act, salary or wages includes:

(a) commission; and

(b) payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate; and

(ba) payments under a contract referred to in subsection 12(3) that are made in respect of the labour of the person working under the contract; and

(c) remuneration of a member of the Parliament of the Commonwealth or a State or the Legislative Assembly of a Territory; and

(d) payments to a person for work referred to in subsection 12(8); and

(e) remuneration of a person referred to in subsection 12(9) or (10).

However under subsections 11(2) and 11(3) certain payments are excluded from being salary or wages:

11(2) Remuneration under a contract for the employment of a person, for not more than 30 hours per week, in work that is wholly or principally of a domestic or private nature is not to be taken into account as salary or wages for the purposes of this Act.

11(3) Fringe benefits within the meaning of the Fringe Benefits Tax Assessment Act 1986 are not salary or wages for the purposes of this Act.

The Fringe Benefits Tax Assessment Act 1986 (FBTAA)

Subsection 30(1) of the FBTAA states:

Where:

(a) at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee: and

(b) it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for:

(i) additional expenses (not being deductible expenses) incurred by the employee during a period; or

(ii) additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during a period;

by reason that the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment;

the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.

Therefore the allowance will be a LAFHA for the purpose of subsection 30(1) of the FBTAA if it is reasonable to conclude that the allowance is in the nature of compensation to an employee for additional non-deductible expenses incurred because they are required to live away from their usual place of residence in order to perform the duties of their employment.

It is considered that the employee is living away from his usual place of residence in this case so the allowance is considered to be a LAFHA.

Conclusion

In this case the employee is receiving a LAFHA from the employer as defined in Subsection 30(1) of the FBTAA.

The Living Away from Home Allowance being a fringe benefit is paid to the employee to compensate for additional expenses incurred and any disadvantages suffered because the employee is required to live away from their usual place of residence to enable them to perform their duties for their employer.

Fringe benefits within the meaning of the FBTAA are not salary or wages for the purposes of this Act.

Therefore the Living Away from Home Allowance being a fringe benefit is not to be taken into account as salary or wages for the purposes of this Act, and would not be included in the "ordinary time earnings" calculations.